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Sustainable investing has become one of the fastest-growing investment themes in recent years as more people are paying closer attention to companies’ environmental, social, governance (ESG) performance.
Assets invested in sustainable mutual funds and exchange-traded funds (ETFs) roughly doubled to $34.5-billion in Canada at the end of 2021, up from $17.4-billion a year earlier, according to a recent Morningstar Canada report. It also shows the industry launched 73 Canadian-based investment products last year, compared with 42 products the year prior.
“It’s a reflection of the growing interest that Canadians have for this area,” says Asmita Kanungo, national director, ESG practice management, at Northwest & Ethical Investments LP (NEI), which is focused on responsible investing (RI).
The pandemic has changed how investors view RI and it’s expected to have a big impact on the registered retirement savings plan (RRSP) season currently underway, she says.
“The pandemic has highlighted many global inequalities including vaccine distribution, food insecurity and the lack of income support for those on sick leave,” Ms. Kanungo says. “Because these issues have been amplified, many people are now shifting the way they invest their money and which corporations they choose to support.”
Globe Advisor spoke with Ms. Kanungo about the rise in RI and how advisors can engage clients in this space:
What’s behind the rapid growth in RI in your view?
Part of it is because our challenges are global in nature. Something like climate change doesn’t affect just one part of the world but the whole planet. It affects everyone. It’s highly visible. George Floyd’s murder became a catalyst for a more intensive conversation around systemic racism and inequality because we all witnessed it. Climate change has been brought to life for all of us because we can see the fires burning. There’s a shift in investors’ values. There’s a trillion-dollar wealth transition from aging and predominantly male baby boomers to millennials and women – two demographics that lean strongly toward aligning their values to the way they consume and invest.
How should advisors be engaging clients on RI?
The Responsible Investment Association came out with an investor opinion survey last year showing that 77 per cent of investors would like their financial advisor to inform them about RI; yet only 27 per cent of those investors indicated that their advisors are having that discussion. There’s what we call an ‘RI service gap.’ Advisors need to be proactive about RI. It can be something as simple as asking a question like, ‘What if you could achieve your financial goals while at the same time helping to improve society and the environment? Is that something that would be interesting to you?’ And that gets a conversation going. We have a program at NEI that helps advisors integrate RI within their practices.
What’s the risk of not talking to clients about ESG?
I’ve worked with hundreds of advisors across Canada to help them get comfortable and proactive in the space and, from what I’ve heard, they’ve never lost a client by bringing it up. In fact, they’ve gained clients. However, some who haven’t brought it up have said they’ve lost clients. So, that’s a risk. Advisors don’t need to be experts in RI, but they should have a good understanding of the space and discussing it will only help to increase client engagement.
This interview has been edited and condensed.
– Brenda Bouw, special to The Globe and Mail
Must-reads from Globe Advisor this week
When is it better to use an RRSP, a TFSA, or both?
How can advisors help clients decide between using a tax-free savings account (TFSA) or an RRSP, and is there a way to use both to maximize returns and save on taxes? While there are some basic rules of thumb, advisors have different approaches. Terry Cain looks at how scenarios like needing a tax deduction or access to the money sooner play into the decision-making process.
Using social media to deliver ‘timely’ content
Some of the country’s top advisors are turning to social media to cut through all the noise that clients are exposed to and provide information as a trusted source. The platforms have also become key in delivering content quickly during volatile markets to help calm nerves. Brenda Bouw looks at how leveraging technology is changing the way advisors do business.
Four key changes to Ontario’s estate planning laws
Important legal changes this year will have an impact on how wills are produced and considered, especially for people who are married, separated and in common-law relationships. Advisors need to be aware of these rules to ensure testamentary documents are compliant with the reforms to deliver their intended effect when executed. Lawyers Kimberly Whaley and Bryan Gilmartin break down how these laws will be upheld.
More turn to alternative investments amid rising market risks
Institutional investors and high-net-worth clients aren’t the only ones scooping up alternative investments as more advisors are using the products for retail clients to navigate market risks. Alternatives often provide stable returns that are not correlated to the stock market and the variety of products is growing. Joel Schlesinger takes a deep dive into the Canadian market to spot the trends.
How to navigate estate planning with the complexities of blended families
Asset managers turn to data to create new, in-demand financial products
How to get younger Canadians to take saving for retirement more seriously
Corporate lobbying ETF seeks to profit from influencing politicians
SEC seeks to bolster disclosure rules for private equity and hedge funds
What you and your clients need to know
What assets do you tap first in retirement?
There are RRSPs, TFSAs, workplace pensions and after-tax assets like the sale of an investment property or an inheritance. Which ones should retirees draw down first and why? Frederick Vettese reports on whether using strategies like drawing down after-tax assets first so that clients can defer income taxes on an RRSP or registered retirement income fund for as long as possible is the best way to go.
Ten energy stocks for the conservative investor
Some investors may be still erring on the side of caution on the energy sector even though these stocks have been on a tear lately. The volatile price of oil has made it difficult for many to ride this trend. Ian Tam of Morningstar Canada looks at companies that have stable characteristics in comparison to others using specific metrics.
Who’s likely to give the best advice on a mortgage?
Canadians can get free advice from thousands of mortgage brokers, but don’t expect them to compare all major lenders and rates objectively. Robert McLister gives the reasons why the best advice might not come from a traditional mortgage broker and what the industry doesn’t like to talk about.
– Compiled by Globe Advisor staff